Astral Poly Technik may fall short of expectations despite new products

A strong and consistent growth has enabled Gujarat-based pipe maker Astral Poly Technik to expand its market capitalisation by over six-fold over the past two years. Analysts say the company’s valuation at 40 times its 2013-14 profits is justified since it is increasing its capacities and planning to launch new products to sustain growth.

Astral is India’s leading producer of chlorinated PVC, or CPVC, pipes and plumbing systems, which are fast replacing galvanised iron pipes in the construction industry. The company has created a unique identity in the market by becoming the first licensee of Lubrizol of USA for this specialised raw material.

It has steadily expanded its product offerings as well as production capacities over the past few years. Its installed capacity at the end of March stood at 97,000 tonnes, triple that in March 2010.

In the last five years, the company’s sales as well as net profit grew at a cumulative annualised growth rate (CAGR) of 41 per cent. Astral aims to maintain this high pace of growth through expansion and product launches. “Our Hosur plant has started running from May,” said managing director Sandeep Engineer.

The plant has started producing draining and plumbing pipes and will add other products over the next 12 months. This will help the company save on transportation costs while catering to the southern market.

Some of the company’s recently launched products, such as column pipes for bore well, bendable pipes, drain systems and adhesives, are gaining traction.


The company is also launching Blaze Master — a new line of fire sprinklers, which will have low installation costs. “The first year will be spent in training and educating the market on how to install them. Their real benefit will be seen from 2015-16 onwards,” Engineer said.

Similarly, the company will launch electrical wire conduits under the brand Wire Guard. The company’s raw material supplier Lubrizol is considering setting up by 2015-16 a plant in Gujarat that will bring twofold benefit to the company. First, the company will need to maintain lower inventories, bringing down its working capital cycle. “It will also take care of our foreign currency risks,” said Engineer.

The company wrote off Rs 26.9 crore during 2013-14 due to foreign exchange fluctuations. Astral’s capacity utilisation has remained around 60 per cent since it is expanding every year. This trend is likely to continue over the next two-three years, after which a lull in capex cycle could boost cash generation and return ratios. Analysts are bullish on the company.

“Astral is trading at an inexpensive valuation of 20x FY16 EPS,” said a report from Ambit. Another report from Nirmal Bang said, “The stock is trading at a P/E of 23x and 18x its FY15E and FY16E expected earnings respectively.”

Considering the company’s stock is trading at 40 times 2013-14 profits, analysts are expecting Astral to double its net profit by 2015-16. The target appears to be a stretch for the company, making the risk-reward ratio unfavourable for investors.